Founded in 2013 shortly after the passage of the JOBS Act allowed for this business model, Crowdstreet has emerged as a leading platform connecting accredited investors to a wide variety of real estate investments via its crowdfunding platform.
I have personally invested in two ground-up building projects through Crowdstreet. The first is a student housing project in Texas in late 2019 and the second being a workforce housing project in another part of Texas in early 2021. Both have projected annual returns (as measured by IRR) of greater than 20% annually. This is a touch above the average realized return of 17.3% across the 63 deals that have gone full circle on the platform, as should be expected for investments that are considered to be on the riskier end of the spectrum among deal types that they offer.
Having invested via both Crowdstreet and numerous other real estate investment companies over about a 4-year period, I’m in a good position to compare and contrast Crowdstreet and my experience with them with that of other options for your real estate dollars. I cannot say that I am unbiased; Crowdstreet is an advertiser and referral partner of Physician on FIRE. That said, I have invested $55,000 of my own money in two deals on the platform thus far.
Crowdstreet Deal Flow
While being the biggest doesn’t automatically make one the best, I feel that Crowdstreet stands out for both the variety and quantity of deals offered.
Some real estate companies, like Origin Investments and DLP, solely offer funds for the accredited investor. Others, including Fundrise, Groundfloor, and Diversyfund, offer funds specifically for non-accredited investors. These funds are a great way to get instant diversification in passive real estate, but you have little control over what types of investments you make and where you make them.
Other platforms specialize in different niches. PeerStreet lets you invest in individual loans on fix-and-flip properties. Roofstock offers turnkey single family rental properties for sale. Acretrader focuses exclusively on farmland.
What sets Crowdstreet apart is both volume and breadth of deal types offered.
In terms of variety, they’ve offered investments in the following real estate asset classes: Office, Industrial, Hospitality, Senior Housing, Retail, Single Family, Flex/Office, Multi-Asset, Mixed-Use, Multifamily, Storage, Flex R&D, Cannabis, Charter School, Bank Note, Medical Office, Data Center, Student Housing, Manufactured Housing, Build-to-Rent, Parking Garage, Land, Co-living, and Veterinary.
That’s a run-on sentence that speaks to the fact that they’ve got something for every would-be real estate investor.
In terms of volume, well over 500 projects have been funded on the platform with over $2.4 Billion invested in projects with a total capitalization of more than $21 Billion. That volume is about 4x greater than what’s been invested with RealtyMogul and more than 10x greater than the same at EquityMultiple to date (as of fall, 2021).
Again, bigger isn’t always better, but it is evident that a large number of investors have trusted Crowdstreet with their investment dollars.
Where & How Crowdstreet Invests
As you might imagine, Crowdstreet does not accept every deal that comes their way. In fact, 95% are rejected. If they, or any platform, were to bring deals from inexperienced operators with less favorable terms, they wouldn’t be in business for long.
Their Capital Markets team has a three-step review process detailed here.
First, they evaluate the sponsor, performing background checks, a review of the sponsor’s prior track record, and they rate them as emerging, seasoned, tenured, or enterprise.
Second, they evaluate the particular deal to evaluate whether they feel the deal is viable, if the assumptions are supported by market data, and if the projections are realistic and in line with a typical Crowdstreet offering.
Finally, if everything is up to snuff, they review the deal documents and terms, negotiating with the sponsor to present an offering that will be attractive to both the investor and sponsor.
Funded deals, as of fall 2021, have taken place in over 250 cities across the United States.
Note that 3 of the top 4 cities with funded deals are located in Texas, a no-state-income-tax state, which is where I’ve made both of my investments to avoid any potential issues with out-of-state state income tax.
Just over 40% of the first 500 deals on the Crowdstreet platform were in multifamily properties, with office, hospitality, industrial, student housing, and senior housing being amont the next most popular asset types.
The Crowdstreet User Experience
It’s been a few years since I registered with Crowdstreet, but I recall the process being straightforward. You’ll see a button to create an account on most any page on the site. They now offer a weekly New Investor Orientation via a zoom call.
Once you’re registered, before you can invest, you must verify your accredited investor status. That is, you must show evidence that you’ve either earned $200,000 a year as an individual or $300,000 a year as a couple for the last two years or that you have a net worth (not including your primary residence) of $1 Million. They offer a Verification Letter Template that can be completed by your CPA, investment advisor, or attorney, or an independent third party that has reviewed your W-2, 1040, or brokerage statements. VerifyInvestor is an online option for that third party that I’ve used before.
As a verified accredited investor, you’ll have access to review the details of each investment on the platform, typically made available before the deal is open for investment. It can be important to have this access, as deals can fill with commitments quickly. It’s also common to have an interactive video call with the sponsor to learn more about a particular deal and get your questions answered before anyone has an opportunity to invest.
I obviously cannot share the details of investments on the marketplace, but anyone can see a preview of current offerings on the marketplace along with a few of the most pertinent details of each.
Every quarter, I get an email inviting me to review the latest updates on the projects I’ve invested in. These are .pdf files with construction updates, pictures, and any changes that have been made or challenges that have been encountered.
Since I’ve chosen to invest in ground-up development projects, most of the return will be realized upon completion, and that is still one to two years away in these two projects, so I cannot comment on distributions, but you should be able to have them direct-deposited into your bank account.
The student housing project I’m invested in has delayed opening by one year, primarily due to COVID-related construction delays. Other than that, there have been no major surprises.
While I haven’t had a deal go full-circle with Crowdstreet, I have had four fully realized deals with other platforms, giving me returns of 2% to 52% as measured by IRR.
Crowdstreet Investment Returns
I can’t yet tell you my outcomes, but Crowdstreet publishes data on every deal that’s gone full circle on the platform. As of this publication, that’s 60+ deals.
Those deals have given investors an average internal rate of return (IRR, an annualized return) of 17.3% a year. With an average hold period of 2.4 years, investors have seen a 41% total return over that timeframe, on average.
It’s important to note that these numbers are the average result from over 5 dozen investments. The range is quite large with the best result being an 88.4% IRR and the worst being -100%.
Yes, you can lose your entire investment in a particular deal, and that’s a fact that I wouldn’t dare sweep under the rug. There is a reason you must be an accredited investor; you really shouldn’t make investments like these with money you cannot afford to lose. Sure, the returns, on average, have been outstanding, but that reward comes with risk. Thus far, they’ve only had one total loss out of 63 deals for odds of 1.6%, but the risk of losing your investment is non-zero.
How do you protect against this risk? The two best ways are diversification (investing in funds or multiple deals) or investing in a safer deal type, such as Core or Core-Plus.
Outcomes by Deal Type
Considered the least risky class of investment on the platform, there have been 11 opportunities to invest in Core deals with Crowdstreet, but none have been fully realized as of 2021.
With 6 fully realized deals, the range of outcomes for core-plus investments on the Crowdstreet platform is 7.5% to 19.7% with an average of 12.6% IRR. None has lost money.
With more than 90 Core-Plus deals funded since 2014, there will be many more data points added in the coming years.
40 of the 42 value-add deals have given investors a positive return, with the average return (which includes the total loss and another negative result) an average IRR of 20.2%. The best-performing value-add deal returned 42.8% to investors.
More than 200 additional value-add deals have been funded via Crowdstreet.
Opportunistic investments target higher returns but carry more risk. Fewer than 10% of the opportunistic deals have been fully realized (13 of 165 to date), with 11 of those giving positive returns. The range is -66.2% to +88.4% with an average IRR of 11.8%.
For details on these along with the projected and actual returns of each realized deal, see the consistently updated Crowdstreet Marketplace Performance Page.
Crowdstreet performs case studies on realized deals comparing the projected to actual IRR, timeline, equity multiple, and hold period. The level of transparency is respectable.
A Deal that Performed as Expected
Hoyt20, a multifamily development project in Portland, OR, went more or less according to plan.
This project was presented with an anticipated IRR of 21.3% for a hold period of 2 years and an equity multiple of 1.47x, representing a 47% total return.
The actual returns were 55% over 2.2 years for an IRR of 21.7%. You can read the case study here.
A Deal That Severely Underperformed
4 out of 63 deals on the platform, or 6.3%, have given investors negative returns. Let’s look at the one that resulted in a total loss. I despise the overuse of the term “perfect storm,” but if one were to apply it to a real estate investment, this would be a good candidate.
It was a hotel transaction of a Radisson near Houston, TX that was to include a rebranding and renovation. It got off to an ill-fated start with a steep decline in the oil and gas markets at the time of the scheduled acquisition that led to fewer business travelers to the area.
That was followed by severe flooding from Tropical Storm Imelda that caused damage to the entire first floor. Finally, any hopes of rebounding from these setbacks were dashed by the COVID shutdowns and future uncertainty. Bankruptcy was declared in April of 2021. You can read the full case study here.
A Deal That Outperformed Projections
This value-add deal to an office / industrial park in Seattle, WA was presented to investors in the fall of 2016 with a tarteted IRR of 20.4% annually for 5 years with an equity multiple of 2.34x, meaning a 134% return.
The slated improvements were made in a much timelier fashion than anticipated, and the project was sold in less than half of the time originally predicted.
The investors realized a nearly identical total return of 128% as compared to the projected 134%, but with a hold period of just 2.3 years. This gave them an IRR of 42.8% annualized. Navigate to the full case study for complete details.
For another 60+ case studies where you can see what went well and what did not, please hop on over to Crowdstreet’s Marketplace Performance page. You do not have to register to view these.
Most real estate investment platforms offer a fair amount of investor education. It makes sense from a business standpoint. They want educated investors, few surprises, and the more information they can provide on the website, the fewer questions their employees will need to answer personally.
You’ll also find quick, helpful articles in the Commercial Real Estate 101 section with posts answering questions like “What are Equity Multiple and IRR?” or “What is a Promote?” There’s also a commercial real estate investing glossary.
You’ll also find more time-sensitive articles that go beyond real estate investing basics. For example, a rank list of The Best 25 Cities for Real Estate Investing in 2021.
For Commercial Real Estate education from additional platforms, see:
Additional Options for Real Estate Investing
There are many ways to invest in real estate.
You can purchase individual rental properties. This is generally an active form of investing where you either act as the landlord yourself or hire a property management team (and manage the managers). I have done this before, but have since transitioned to passive real estate investing.
You can invest in privately traded or publicly traded REITs. I’ve been invested in Vanguard’s REIT index fund for years. Note that during the Great Recession, the value of the fund plummeted 78%. These investments are not as uncorrelated with the stock market as you might like them to be if diversification is what you’re after.
If you can afford a six-figure minimum investment, Origin’s IncomePlus Fund will take a $100,000 investment to instantly diversify you among numerous equity and preferred equity deals. DLP’s Housing Fund is similar in several ways, and its $100,000 minimum (for PoF readers) will be increasing to $200,000 in November of 2021. They’ve also announced a development fund called the Building Communities Fund.
You’ll also find funds from Cadre, Alpha Investing, and others. Crowdstreet’s fund offerings include an Opportunistic Fund and a Subelt Multifamily General Partner Fund where investors receive 30% of the sponsor’s promote.
You can also invest in syndicated deals independent of any platform. These will not have gone through a screening process, so due diligence is of the utmost importance when doing so. Passive Income MD specializes in teaching others how to best go about vetting individual deals. At a minimum, whether investing via a crowdfunding platform or not, it’s wise to look into the track record of the sponsor and pore over the “pro forma” numbers representing projected returns to see if they appear to be reasonable for the type of investment and location.
This is not an exhaustive list of real estate investment options by any means. You can also invest in notes (mortgage loans), tax liens, short-term rentals, and even in the real estate investing platforms themselves, among other options.
Getting Started with Crowdstreet
While Crowdstreet as a platform couldn’t exist prior to the passing of the JOBS Act of 2012, which allowed crowdfunding to bring institutional investments to accredited individuals, they are offering investments with sponsors that have longer track records, some of which have been in business for decades.
For a closer look at their current and future investment offerings, create a free account and start learning more today.
Physician on FIRE may be compensated if you choose to create an account, but this site receives no additional compensation whether or not you invest your money with Crowdstreet or any of the other companies mentioned in this article. Also, the fact that I’ve invested with them does not mean that it’s a suitable investment for you. I may very well be in a different financial position than you.
Nevertheless, with a strong track record, admirable transparency, and a strong deal flow, if you are going to consider these types of real estate investments, Crowdstreet is a solid place to get started.